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Show Lots of Debt for AH Who Like It By ERINEST MINOR PATTERSON President, American Academy of Political and Social Science An important question arising out of the Byrd-Eccles debate over national na-tional finances is: What is the difference differ-ence between public and private debts? 1 Mr. Eccles ar- f'T SSrwyvfrl gues that the to-r to-r ' '-s 'j tal of all do- 5 . ''; i mestic debts, I . v both public and Li . w-y .' private, is no If greater today j i V than it was in L V f 1929: 'hat 'n- ' J terest rates t f have sharply jtfay declined and '- vv- that the interest "'5 charge on this V ' debt is far less - ' than in 1929; I..-- JMi that in 1937 the national income was $30,000,000,000 larger than in 1932 and that the interest charge on the federal debt is only a little more than one per cent of this national income. Senator Byrd contends that a private pri-vate debtor enters into the promise voluntarily while the government creates the public debt with the taxpayer, tax-payer, the ultimate debtor, not consulted; con-sulted; that per capita income which was S668 in 1929 was only $540 in 1937 and fell to $500 in 1938; that taxes were 12 per cent of the national income in 1929 and 20.6 per cent in 1938; that in this as in other aspects of the discussion discus-sion slate and local finances should be included; that present low Interest rates are low only because business is not active and the interest burden of the federal government will soon be higher; and that large public expenditures ex-penditures are not "priming the pump." This brief summary does not do full justice to either of the men. It includes in-cludes only the main points. Both are correct in many particulars but both exaggerate. It cannot be too often repeated that there are two points to be kept in mind. One is that there are both similarities and differences between be-tween public and private spending and public and private debts. Important Impor-tant In either case Is the use to which borrowed funds are put. Are they so used that the debtor has an increased productive capacity with which to carry the debt? Government funds may be so used that the national Income In-come is enlarged and higher taxes can readily be paid. Second Is that payments to carry debt, whether public or private, are not a deduction from the national income, in-come, but a diversion of it for certain purposes. The debtor receiyes it through the sale of goods or, as in the case of government, through taxes and pays it out to creditors. There is no loss in this except in the cost of collection and payment. There Is a loss if either public or private borrowers borrow-ers use funds for unproductive purposes. pur-poses. So-called "pump-prlmlng" does not do what its name Implies. We may defend enlarged government outlays during a depression on the ground that public relief must be given to the destitute or because a more serious collapse is avoided by the use of government gov-ernment purchasing power while private expenditures are curtailed. But that Is not "priming the pump." It is merely filling in the gap until private business can recover and it is always possible that some government govern-ment funds may be spent in ways that will interfere with recovery. Government debts are now so large that their carrying charges will be hard to meet, especially when lntere.it rales are higher. Only with a greatly increased national Income can It bo done without serious strain. One of our problems in the previous decade was that indebtedness, both public and private, was too large. Heavy debt makes any financial structure rigid. A business recession, especially if prolonged, forces defaults and bankruptcies. These are serious In any case but peculiarly so in the case of public debt. It Is clearly time to watch our step in the matter of government borrowing. |
